Yet Another Value Podcast - Nitin Sacheti breaks down $VATE's SOTP

Episode Date: October 26, 2021

Nitin Sacheti. CIO of Papyrus Capital and PM at ARS Investment Partners, breaks down his thesis for Innovate (VATE). VATE used to be known as HCHC. HCHC was a mishmash of interesting but disparate assets with a huge cost base. Following an activist battle in late 2019 / early 2020, a new management team was brought in and they have sold off noncore assets while dramatically reduing corporate overhead. Nitin believes the remaining assets are all uniquely valuable, and each could be worth more than VATE's current market cap on their own. With several looming catalysts and inflection points, Nitin thinks the next year or two could cause the market to rerate VATE closer to its intrinsic value.My thread on $VATE: https://twitter.com/AndrewRangeley/status/1452377035897200653?s=20Chapters0:00 Intro2:15 VATE Overview3:05 Segment #1: DBM Overview5:15 Segment #2: Life Sciences Overview7:15 Segment #3: Broadcasting Overview12:10 Discussing VATE's new management team21:45 Breaking down the Broadcast business30:00 Pushing back on the broadcast business plan35:50 How to value broadcast's spectrum37:55 Is broadcast spectrum still valuable in a 5G world?42:20 Discussing DBM's moat and value47:40 What does R2 (life science's main asset) do?53:20 Walking through VATE's SOTP value1:00:50 How to look at VATE's recent related party deals1:05:25 Discussing VATE's chairman and largest shareholder1:08:15 What's the endgame for VATE?Additional disclaimer: Today’s discussion may contain forward looking statements all statements made that are not historical facts are subject to a number of risks and uncertainty; actual results may differ materially. Please refer to ARS's website for important legal and disclosure information: www.arsinvestmentpartners.com

All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Dinan Ciccetti. Nidin is the CIO of Piper's Capital and he is a PM at ARS investment partners. Nidon, how's it going? Good, Andrew. Thanks for having me. I'm excited to do this video. Hey, I'm excited to have you on. Let me start this podcast the way I do every podcast. That's first with the disclaimer to remind everyone that nothing on this podcast is investment advice. That's going to be particularly true for today's podcast. We're going to be talking about a stock that is quite small and illiquid. And I'll just note that we have some extra disclosures and disclaimers from Nidenside that will be in the show notes. So everyone should be sure

to go and read that. Nidon also has a position in the stock. I'm sure that's important to disclose to. And then the second way I assert at the podcast is with the pitch for you, my guest, you know, we've been swapping notes for a few months. And it's been mainly on telecom stocks, which the stock we're going to talk about today kind of touches upon. But I would just say on the telecom side, I talk to a lot of telecom investors. And there aren't many people who, who both have the understanding of the space that you have and who have the kind of breadth of the history of the space that you have. We were talking on Friday. And one thing that jumped out was you said something along the lines. Oh, that thing you just mentioned. That reminds me was something John Malone said in 2007 at the

Liberty Annual meeting. It was like, oh, my gosh. How many people know that? I wasn't even following Liberty at the time. So I'm a Liberty junkie. You know you're talking to the right audience. that. But look, I know you've done tons of stocks, tons of work on the soccer room to talk about today. You do really do diligence. I think that's going to shine through on the podcast. So all that at the way, let's go to the company we're going to talk about. The company is innovate. The ticker is VATE. Many people might know it by its old ticker. That was H-C-H-C. I think it was called H-C2 Holdings or something at the time. But I'll just flip it over to you. What is VAT and why are you so interested in it? So, yeah, so thanks again for having me.

And, you know, in terms of sort of disclaimers, I know, as you had said, you're going to put them in the show notes, but, you know, we do hold a position in the stock. Like you said, Andrew, we will trade in and out of it. And, you know, none of this is sort of, it should be construed as investment advice in any way. So just to get that, get that out there. So they, like you said, used to be called HC2. The company's had a very sorted history. And it sort of started off as quite a few assets several years. ago. And then, you know, from 2019 onwards and especially 2020, 2021, you know, with an activist coming in early 2020, you know, the company shed a lot of assets, refinanced debt and looks very, very different today than it did a few years ago. And so that's part of the opportunity is how much the business has changed, how it's inflected, and, you know, the go forward path that makes it so interesting to us right now. So I'll start with just kind of what the business is today. So three main parts to it, DBM, which is a steel fabricator. This is, you know, infrastructure business. DBM is one of the largest fabricators in the country. You know, steel fabrication, modeling,

detailing, you know, welding, galvanizing, building very large-scale structure. So again, one of the largest in the country, especially after they acquired Banker Steel earlier this year. They did, you know, DBM did Facebook's headquarters in Menlo Park, Apple's headquarters in Cupertino. You know, they did the Ram Stadium. They're doing sort of the new Fab, out west application facility of the semiconductor side. Banker did J.P. Morgan's headquarters at 270 Parkers doing that right now. You know, DBM's also doing the Clippers Stadium.

So they have a lot of large, a lot of marquee projects, and that's in that level of scale and sort of know-how in the industry to do these sorts of big picture projects or large-scale projects is a lot of the, you know, the secret sauce in this business. And so I'd also add that with everything going on with onshoreing and, you know, with the potential infrastructure bill, there's a lot of room for that. them to keep growing and sort of winning contracts. And you sort of see that in the current backlog. And I can get into that in more detail, you know, when we talk about financials. But the point is, is that backlog is really growing nicely. And, you know, when we extrapolate next 12 months backlog

into what we think is going to happen with revenue growth, we get to some pretty nice revenue and EBITDA numbers in this business. There's also 1700 steel fabricators in the country. They have a history of sort of being inquisitive and rolling up in the space at very high margins of multiples with senior, excuse me, very high levels of accretion and margin expansion. And so there are, again, 1,700 seal fabricators in the country. So they really have the ability to potentially continue to roll up the space the way they have been doing in the past. So that's sort of the first business. The second business that I think is of note is the Pansom Life Sciences portfolio. And so Pansan is basically a, you know, you can look at it as sort of a small

venture capital portfolio with just a handful of assets. We really like and attribute all of the value that, you know, that we put on Pansan to R2 dermatology. And, yeah, you tweeted about this this morning. But I think R2 is a super interesting business. It was founded by the founder of Zaltique Cool Sculpt. That business was sold to Allergan for $2.4 billion. This business effectively does. is, you know, essentially skin toning, which is a $22 billion market. And so it's sort of, you know, more aesthetic, but it's, you know, it's some spots, it's age spots, and it's sort of toning them. And they also have sort of a device in Asia that is sort of a skin lightning treatment

to. So they have received FDA approval in the U.S. earlier this year. Revenue in Q2 was very low for R2 because it literally just started selling these devices, but they're doing a lot of demos right now. You can follow them on Instagram and kind of see how cool the technology is. And we think, you know, growth in this business is going to be pretty significant, you know, as they start rolling out the machines to dermatologist's office and they're in the process of getting approval in China in Q4, for, you know, expected Q4 for, you know, glacial spa, glacial RX, the device in China. So we think, again, super interesting business founded by Rox Anderson, who started as LT Cool Sculpt. and, you know, Harvard dermatologist, very well known in the industry for being sort of innovative.

So we think there's going to be an interesting value creation event that happens here in the next couple years. And so we're excited for that because I think that point, that allows us to create some monetization events that have sort of not happened for so many years in the stock, which is why it's languished for so long, like you mentioned in your tweets this morning. So the third business is, major business, is HC2 Broadcasting. And so, I mean, that's kind of one of the reason that first started looking at this business because years and years ago, the former CEO started buying all these broadcast stations. And they were all essentially white space broadcast stations. And so what exactly is that? You know, your local Fox, so I grew up in Hartford, Connecticut, and the local Fox 61 station

was owned by Tribune. But even though it was a Fox station, it was sort of a local broadcaster. local broadcast industry is essentially, you know, a particular company has the spectrum, which is, you know, broadcast spectrum, no different than wireless spectrum, but, you know, FCC approved for a very different use. So that broadcast spectrum in that particular market, and they broadcast, you know, signals from a tower to, you know, your bunny ears antenna. and that's sort of how the local news is watched and how you sort of get local TV.

Now, the difference, and then they're obviously paying, you know, fees to be the Fox affiliate to parent Fox, and they're getting commercial revenue from, you know, the local news and sort of the daytime broadcasting and the parent company, Fox is getting sort of. of the advertising revenue from the prime time shows. And so what's so interesting and different about this business is that there is no local channel. So if you take that Fox 61 station out of the channel, and it's effectively just a white space broadcast station that can be used for anything.

That's what the former CEO started acquiring. And so they cover about 60% of the U.S. population. You know, they have about 230 broadcast stations and 90 U.S. TV markets and 34 of the top 35 markets. And so what they're looking to do here is really continue to lease these white space stations and generate some revenue from carriage. So, you know, let's call it an OTT provider, you know, streams its content over its device into urban and suburban households that have broadband connections. But if you're in a rural area, you have no way of streaming, you know, X, Y, Z, OTT service. So, you know, this is theoretically a way for somebody in a rural area to have, you know, something like a table box or to have a broadcast antenna and to receive that content they otherwise wouldn't be able to get in that way. So that's one use of the spectrum.

And then, you know, we can talk in more detail because because I know, I know we talked Friday about how this is potentially a really interesting business, but it has so many different use cases. and the use cases are years out. And one of the things management says here is that for the time being, they're going to lease content through this current business model. But there's a lot of versatility to whether or not the spectrum can be sold in a future broadcast auction or it can be leased out for 5G purposes using ATSC 3.0. And I can get into more on that. But the point is there's a lot of versatility in this business

and there's a lot of value on the come. And it's, you know, I would say the same thing on, you know, some of the other Pansend holdings. I won't get into it now because I think there are small in terms of overall value. I think R2 is really the one to highlight. But, you know, there could be huge upside to what R2 is doing alone. And then again, DBM, infrastructure bill, great acquisition. They just made with banker steel. You know, we think it kind of covers the entire market cap and gives us significant.

and upside on top of all these free options we have in Pansend and broadcasts. And I'll stop there because I've been talking for a while. All right. Podcasts over. We covered every segment. No, no. Look, that was a great coverage. You know, I want to go deeper into each of the segments. I want to tie it together with valuation. I will say, you know, we'll go to valuation, but I will say the stock is a little under $4 per share right now. You just mentioned you think DBM alone covers the entire market cap and more. I mean, you know, you mentioned was Cool Sculpt. I don't have my model up.

So this is like a $100 million market cap company, right? It might be $200 million. I can't remember off the top of my head. But you mentioned Cool Sculp, the health care side, on the health care side, R2, which was R2's former business sold for like $2.5 billion. So, you know, you can start doing the math. You're talking a couple hundred million dollar market cap where you mentioned DBM might be, R2 might be like this could, everyone should do their own.

own diligence. This is very risky, but there are several moon shots in here that we can talk about. So I guess I want to dive into each segment, but let's just talk about like, look, we'll go into value in a second, but the management here, right? Like old management, Bill Falcone, very controversial investor. He's made fortunes. He's lost fortunes. He maybe hasn't always treated to shareholders like his partners. He's gone. The new management has come in. I think a big piece of your thesis, the thesis here is that new management is going to realize value. So I just want to take a second to stop and have you talk about why do you think this new management team is going to realize value? And then you saw my tweet so you might know it's coming, but I might

have a little bit of pushback there. Okay. So I would say the first thing is let me just talk about the history of the business, you know, under the previous CEO. And so, you know, in 2018, just as the capital markets were closing in December, they issued some, you know, very high cost convertible debt. And so that's sort of when the stock went from mid-fives down into the threes. And then it didn't really recover from there. It started to, with the activist coming in and then COVID happened, because the activist was sort of January, February 2020. But anyway, starting with that, you know, you had that issue. You had very high corporate optics. You had two floors in Park Avenue for their headquarters. And I don't need to go through

the rest of that. Anybody can take a look at Mike Gorsensky, the activist who stepped in here, and Percy Rockdale is the vehicle he was using. Anybody can sort of Google the presentation and, you know, take a look at what the former management team, excuse me, I should say former CEO, what was involved here, what was happening. And what I would tell you again, like I said before, that this piqued my interest in the spectrum business is that, you know, I think that I've been a spectrum bull for a very long time, probably starting as early as 2007, 2008. And I still continue to think there's real value in spectrum, even though prices have gone up, especially in a 5G world. And we think about sort of all of the, you know, M-to-M-IOT, you know,

AI devices, and just everything that's going to happen. As, you know, we have this positive feedback loop where, you know, more data enables sort of the use of more networks, which are more data back to the cloud and enables more and more, you know, machine learning. So, and the reason I bring that up is because I think that Phil Falcone was a very, he was a visionary in a lot of ways, and he was very thoughtful in terms of some of the assets he put into what was HC2 at the time and is now vague. And so that's why I got interested and excited. Again, stock languishing through 2019, the activist steps in.

launches a proxy battle. A couple other large shareholders step in. You know, the now chairman also stepping in. They basically push the former CEO out. You know, they then start to sell assets. So they refinance some of the high cost debt. They do a rights offering. They sell their insurance subsidiary, which I know you had questions on. And sort of some or other non-corr businesses they sold. And so now we get to this point where we have these three businesses. And what's exciting about these three businesses right now is one, they did this banker deal. And I can get into that when we talk about valuation, but they did this banker deal on DBM.

I think that was just a home run deal in terms of what they got, the time at which they got it. And the free cash flow that generates over time. And I think that's, again, on the management front, I think it speaks to the DBM management. team is very, very good. And they've run this business really well. And so, and they've acquired properly. And so I think that's exciting because you're going to generate significant free cash flow there. I think what's exciting about Pansend, especially glacial RX, is, you know, barring any funding that they do in some of the other smaller holdings, I think we're sort of done with, at least from our perspective and our estimates, we're done with funding R2. And you

would you mentioned that in one of your tweets too. And I think this is now self-funding. And I think now it starts to grow. And I think the value there to your point is that Zalti-Colteculp went public at a $25 to $30 million revenue level. And so we could potentially see this go public. And I know management sort of thinking about that, we could see this go public at that revenue level next year in theory. And so, and again, that's by our our estimates. And so, If, you know, this goes public with a, you know, $500, $600 million market cap, you know, and we own half of that company and we have no more funding to go through here, you know, that is, that's going to realize a lot of value when people just, you know, look through the market to the market.

And so, and then I don't think the company is going to, going to spin the shares anytime soon. I think they're going to wait for more sort of value to build. But then by 2020, late 2020, 2023, as this really sort of hits its. stride in terms of inflecting on revenue growth in R2, we could potentially see distributions. And those distributions, again, could cover what we're paying for VAT stock right now, right? When you just think 77 million shares of V8 outstanding, if Kualsculp got a billion dollar market cap, excuse me, if R2 got a billion dollar market cap, and we owned half of that, $500 million, just do the math, $500 million over, you know, 77 versus $3.85 stock now.

And R2, correct me if I'm wrong, because I read the calls and stuff, but they are not the only investor here. Like there are other minority investors who have come in and put a, I can't remember what the mark is, but they've put a serious mark on R2. Yes. And so Wadong is their other funding partner. And it's Chinese, they funded some other Pansan portfolio companies. And, you know, they have Poland China too. So that's a lot of why they're pushing for regulatory approval on Q4. So it's not just a passive investor here. It's Somebody who actually has a presence on the ground in China and especially a glacial spa could be a really big. And that's that again.

It doesn't necessarily need to go into dermatologist's office. It can go into metasas. And so that's the kind of thing because it's more aesthetic for skin likening. And that's the kind of thing that could grow gangbusters in nature too, right? Especially given sort of cultural bends towards that sort of product. So I think, you know, the reason I bring that up, it's a long answer to your question. but the point is, I think Pansend has a great management team. I think DBM as a great management team, and they've shown us that they're doing the right

things to build these businesses. I think the CEO, obviously, have consistent conversations with the CEO and CFO, you know, Wayne Barr, Mike Senna of HC2, or debate, and I think they're, I think they're great operators, too. And I think they're sort of stewards, better stewards of this business than the previous management team. And look, and then the last thing is really on the spectrum side, I think the spectrum business, you see it in the last couple quarters, it went even dot positive. They spent a lot of CAPEX on upgrading their infrastructure for ATSC3. And I can get into, again, more detail on that technology. But the point is, is I think CAPX is declining. I think, you know, they're EBITDA

pre-cashful positive. So they will not be funding these two businesses anymore. And so, So you're going to see them take dividends out of, out of DBM, and then they're going to use those dividends to sort of pay the hold code interest expense. They're going to refinance in the future. We're going to have a harvesting event, I think, on R2 at some point in 2022 and 2023. And then I think we're going to have a lot more color into just sort of how big the spectrum business can get as we get closer to 5G deployment, autonomous cars, and so forth. forth in 22, 23. And we could even see a spin of that business to kind of harness value. And I think the last thing is if they decided to go that route, then you would just see

sort of a re-IPO of DBM. And, you know, and I'm not even saying a re-IPO in terms of a new company, but change the name, you know, get some sell side interest. And, you know, when we, I think we have them doing 170 million in EBITDA in in 2023 for DBM standalone. You know, at nine times EBITDA, there was, you know, Canem, which is a competitor there as the fabrication business, was applied at 12 times. So at nine times, you know, 170 million an EBITDA gets you to $15 per the share, right?

And so that's if, you know, they're able to sort of harvest some of these other assets, sell, spin, pens, and, you know, do something in terms of monetization or spinning, HC2 broadcasting once it gets bigger and it's standalone or even sell to a larger broadcaster. and then you're left with a steel fabrication business that as that's revalued, you know, this could be a $15 stock plus what you get from Pansans and Spectrum. Okay. We're going to come back to the management. Okay. But I can tell you, you want to talk about the segment. So let's just dive into the segments right now.

Okay. Let's start with broadcast because, you know, I don't know. I think DBM is probably the core value driver here, but I think broadcast in some ways is the most interesting. It's the one that, you know, I mentioned that at the beginning, you and I probably spend a lot of our time in telecom. So it's kind of the one that I latch it onto. You know, with spectrum, you can really put a big multiple on the spectrum. So let's just talk broadcast. You know, broadcast as you said, what they did is Phil Falcone said, hey, the cheapest way to reach the entire nation is just go by all these, you know, channel 39 on your local TV station, right?

Like it's the broadcasters, but it's not the Fox broadcaster. It's like the crappy little off local news. You know, I'm looking at their New York City station they bought is channel 34. I don't, I'm a cord cutter. I don't know, but they bought it for a little over two million dollars back in 2018, right? So they buy it. But the thing is, you buy a broadcaster. A, you could access anyone who can reach to you gets access that OTA. And there's actually been a little bit of cord over, OTA, over the air. You cord cut, but then you get the bunny ears so that you can get all the local channels and you can still get the NFL and everything. So they kind of played on that cord. And then the second area that they did was they said, hey, we'll buy all these OTAs so we get nationwide

coverage. But B, we'll also have all the spectrum. And on the back end, on the spectrum side, you said, you know, maybe the spectrum has a lot of value. So do you want to start talking about the spectrum or do you want to talk about the business itself? Let me talk about, I think the two kind of work in tandem. And let me, let me frame how I think about this. So I think about this business as, you know, you have the rural U.S. and then you have the urban U.S. And I think the business, and again, this is sort of my view on the future, the next five years in the Spectra business. I think the business bifurcates. I think what you end up with. So, you know, we're invested in the company that, you know, has content. And so they basically own a library of content and they have an OTT streaming service. And so one of the things for them is that they don't have broadcast channels, right? And so like I was mentioning earlier, there's 20 to 25 million households in the U.S. that's sort of outside a dealer's slow. copper or it's outside the broadband footprint totally. And you and I talked about Echo Star and that's really their sweet spot right with their satellites. But the problem is you can't really stream on that

because there's a finite amount of capacity and they actually throttle you too if you start to stream too much on it. So there are all these households that can't access, you know, streaming content. And so, you know, partnering with a company that has a streaming service in those rural areas on these channels to say, look, you're going to have to do your own marketing, but we'll lease the channel for you. We'll lease the channel for you for 20, 30 cents an eyeball. That's how they think about it. It's just sort of eyeballs that, you know, that a single channel or a group of channels, you know, was exposed to. And so, you know, we, they go to the streaming service and they say, you know, put your stuff on our channel. You're going to advertise for that channel so people

who get the table box or have a bunny ears antenna can, you know, go to that channel and watch the content. But the idea here is that there are very few people if no one has open stations in rural areas that they can go to a, sorry, go ahead. I was just going to question. Can you give an example of a channel that has partnered with them? And then if I partner with you, it is typical like cable style watching, right, where I have to watch what you're programming. I can't, I not going OTA streaming through this service, right? Like, I can't go Netflix style and she's like, right now I want to watch you and then I want to watch Squid Games. Like, I watch what they're programming. Yes. And so it's no different than if you were to, you know, have a, you have your Apple TV,

right? And your Apple TV, you know, one minute you're watching Squid Games, next minute you're watching succession, right? And so when you're switching between apps on your Apple TV, it's no different here. You would just switch to the app that's then connected to your Bunny Hears antenna, right? And so that's really how you would watch some of that content. So you would switch that that connects to your buddy or antenna and you would just watch whatever is streaming on that channel. Yes. Well, but you can you can switch between all the channels that are available, right? Because you're, in theory, your bunny ears antenna is going to get the local Fox channel. It's going to get the local NBC. Yes. ABC. And that goes to your point

around cord cutting, right? If you are a, you know, cord cutter, but you want, you know, local channels, right? What are you going to do? You're going to get one of these one of these bunny ears antennas connected to your Apple TV, and then you're going to stream on them, right? And so that's where they bring the substitute in for, you know, some of these, some of the corncriders. And again, they're not getting paid on you watching NBC, right? But when you buy that device and you stream, you have access to the channels, you're going through the channels. If you find that you're in this rural area and you want to watch the Netflix, I don't know, Squid Games channel, and Netflix, and I'm not say Netflix is doing a deal with them or they've even talked about that, but Netflix does

deal with them for those 10 million rural households. You go on the Squid Games channel and you can basically watch episodes of that. It's going to be linear TV, right? It's going to be episode after episode. You're not going to be able to, you know, you don't have two way, but that's the key here, right? And that's the value that they provide. Can you give an example of a streaming service that's worked with them? So they're working with Scripps Ion. And so they did that in Q2. They launched that for 47 station, 47 of their station. So they're effectively putting scripts eye on content on their channels, 47 of their channels. And the other thing to mention here is while they have 230 broadcast channels, there have been

a lot of technological changes that actually improve the number of channels that they have per station. So they can effectively go and broadcast to six to 10 channels per station in a local area. And again, you could argue well if there's a local church station, right? Like, wouldn't they be able to go to Netflix and do something like that and, you know, compete with, you know, HC2 broadcasting here? And I would say no, because the whole value here, this is where, you know, they paid a little bit here and there for all of these stations. But his Falcone's quietly putting all of these together creates that scale. And this is a business where scale is so valuable because you can then get all 20 million of those households, right?

You're not going to 100,000 here, 400,000 there. Let me provide my two pushbacks. I looked at this a couple of years ago, and it was the related party deals in the management and the management content. On broadcast, do you mind if I just get into the other side, the urban areas, really quickly? Oh, yeah. Talk to urban areas, and then I'll get that.

So, sorry, I was just going to say the bifurcated, you have these rural areas where I think this will stay a channel that leases content, right? And in the urban areas, I think that's where you have the spectrum crunch. in 5T. And I think in that spectrum crunch, one thing you can do with ATSC3 is these new broadcast towers and these new antennas that they've spent the CAPEX on to broadcast from like a single, I guess, knock they have will enable them to actually take content and distribute that to IoT devices with an antenna for the broadcast signals. So if you have an autonomous car and, you know, I don't have the stats in front of me, but you can look at what

you know, so many, Charlie Erkin said this, so many of, you know, former Intel CEO, so many people have said that, you know, if you just look at the amount of data that an autonomous car absorbs to work, it's just mind-numbing. And they can utilize their spectrum and wholesale it out in urban areas. And, you know, all the car needs is an antenna for ATSC3 for the broadcast channel, you know, in its other, you know, Qualcomm, you know, RF antennas. And, you know, you can effectively take content and then you can distribute that to all of these cars. And so that's something that they have, that, you know, will be hugely valuable in the 5G world too. So I see that business is bifurcating.

And I think you have this leased to carrier type model in urban areas and then you have the lease to the content providers in the more rural areas. So let's go back to the rural area. So I want to provide two pushbacks here. So I think the first pushback would be. All right, 20 to 25 million urban areas that are using OTAs to get content because they don't have great internet so they can't stream. So the first pushback would be, you know, you're a cable bull, I'm a cable bowl, we follow this. There is a huge push to end kind of the digital divide, right?

Like you're seeing huge subsidies. Every other day we see a rural telecom come out and say, hey, we're investing hundreds of millions of dollars over the next five years to upgrade our old copper into fiber. That obviously won't cover the super, super rural areas, but you're also getting, you know, satellites launching, Starlink's coming out with the product. So my first pushback would be, hey, that $20 million is going to shrink a lot over time because there's just such a big push, whether it's the company's economic incentives themselves or just the infrastructure bill, just pushing money to close that digital gap. So that $20 million is going to shrink would be number one. And then my second pushback would be, okay, even if you assume the $20 million is going to stay and everybody's going to watch OTA, right? You and I are, we followed the cable sector and the telecom sector for a long time. The long tail of channels, they're just not that valuable because people, it turns out, they just want to watch, they want to watch football and they want to watch the big buzzy shows.

And like, you know, how many times the only big network that ever launched successfully was really Fox. You know, how many times did we hear, you mentioned script Zion. They were going to do, I don't think it was iron. It was WGN TV was going to become the sixth super station or whatever, right? And it just doesn't work because there's just a little bit of a network effect. You always watch this channel, your friends watch this channel, all the sports on that channel, because everybody watches that, they have economics to pay for better shows. So those would be my two pushbacks.

I'll let you address either of them. So the first thing I would say on the first pushback is if you look at where, you know, frontier, windstream, consolidated communications, most of these companies are looking at where, I mean, you know, Frontier, you know, incredibly well, right? Most of where they're looking to launch fiber to the home is where, one, they already have some sort of DSL network with decent broadband coverage. Two, they're looking to launch in areas where the cable companies already have service, and it's effectively a cable monopoly and more suburban areas, and they want to turn it into

a duopoly. They want to take 30% market share, and they can really make the economics work at that, right? And so what I would say is that there was an FCC study that I remember reading years, years ago. I think it was done like 2010 or 2011. And it was talking about the, and it was something that I read to get more comfortable with an investment in Echo Star, which again, we talked about Friday. But what it was essentially saying was that there are these like basically 10, 15 million households in the U.S. that are so rural that, you know, there is no talk of even putting anything, you know, any sort of like, if you launched fiber, it would be what, 10, 12, 15,000 dollars to

wire out to these types of homes. And so I think the point is, look, if you were to wire a million of those at $10,000, where are you talking like $10,000 of $12 billion? And what's the amount earmarked in the infrastructure bill, which is sort of the largest, you know, spend ever done on something like this is what, $20, $22 billion, assuming that the current bill passes, maybe $24, I think. So the point is that how many households are you going to be able to connect at that level, a million, maybe. And so, so, so, so, especially when you're spending so much at connecting, creating duopolys and these monopoly cable markets.

So the, the point I would mention is that there is this untapped level of these households. And, you know, I don't think though, I think there's enough of them that, you know, a business that's super rural like this. I mean, it's a reason why DTV and DISH still have video businesses, right? Satellite video businesses is because you just can't get anything to these households. They're so rural. So that's the first thing I would say. The second thing, and your second point, I would say is really that content is key, right?

At the end of the day, yeah, if you have crappy content, you know, you are not going to be able to sell it, right? Like you could have, you know, crappy morning PBS content and nobody watches that. There's a reason why PBS, yeah, I mean, that's a bad example because it's a public broadcasting. But the point is, if you have crappy content, nobody's going to watch it, right? But if you have a network like this and this kind of scale and you can reach those rural households and you can go to somebody who has a squid games and you can say, you know, put that content out to these households because it's the only way you're basically going to be able to approach them, then you have that quality of content. And again, I'm not saying that's happening, but I'm saying that's some of the potential in this asset. The other thing to say, too, is that if you look at just like these top 34 of the top 35 markets where they own, they own stations in 30. 34 in the top 35 markets. I mean, you tweeted about this too, and I agree. I think another broadcast spectrum auction is a long way away,

but you don't need much for this to work, right? And for this to actually generate $300 million, $500 million in value for HC2, which is revate, which is, you know, several dollars per share. And all you really need is just some of this stuff to work, right? You get a couple large OTT streaming services, leasing stations. You get, you know, a couple big in these 34 markets. Let's say you're talking about these are all kind of NFL cities, right? So you're talking about, let's say the top 10.

We valued the spectrum in the top 10. And we valued it like 40 cents a megahertz pop. And you get to $700 million in value. So there. I'm just going to dive in with some questions on spectrum because I do think it's. So for those who don't know, there was a spectrum broadcast auction. And I think it was 2016. And what the spectrum broadcast auction was, look, your big local broadcaster.

your Tegna, your next stars. If CBS owns your local station, CBS, they'd say, hey, we've always streamed our things. I believe most broadcasters are in the 600 to 700 to 700 million years. They'd say, we always stream it. But, you know, at this point, technology's improved. A lot of our stuff goes over cable. Maybe we don't need as much. The FCC said, okay, great, auction it off, right?

If you don't need it, tell us, we'll sell it. We'll take a cut. We'll sell it to the big wireless players who do need that spectrum. And that went for a nice number. So my pushback, why don't you just tell us, what was the dollar per megahertz pop that's kind of similar spectrum to what HCC now owns across the country went for back in, I think it was 2016. About a dollar a megahertz pop, but that was nationwide.

And only about half of that, I believe, went to the broadcasters themselves. The rest went to sort of the government and to clear the stations and to pay for all that clearing. So call it 50, 60 cents a megahertz pop. But what I would say, sorry, one other point on that, what I would say is that when I look back at something like the AWS auction, which was a higher, it was a higher frequency into your earlier point, higher frequencies to a level, to a certain level, are more valuable. That was $2 a megahertz pop, $2.20 per that megahertz pop for that auction. But when I look at that auction, the New York City station went for like $8 a megahertz. So the point here is that big cities where populations are dense, and there are a lot of people

using their phones all in a small area, they need more spectrum, right? So there are more spectrum crunches in those areas. And so I think you get more than, you know, 30 to 40 to 50 cents a megahertz pop in those areas. But we're putting, for the sake of argument, we're putting that number on their top 10, and we get, you know, five, six hundred million bucks. Okay. Which, again, covers the market cap. Now, there's debt associated with it and there's a subsidiary debt, but covers the market

up. I'll give one more pushback because you're right, spectrum covers a power wall, right? Spectrum in New York City, more valuable than spectrum in rural Montana and higher band spectrum in New York City, more, way more value than higher band spectrum in rural Montana because for those who don't know, higher band spectrum can carry more data. It's better for data intensive applications like 5G, but it can't propagate through walls very well, and it can only go very short distances, right? So 600 megahertz might be able to travel 10 miles. A radio station can travel like 10 miles. 500 megahertz might be able to travel

100 meters or something. I'm doing rough math, but you can tell me if you screw with him. My pushback on the HCC spectrum was 2016 was a different time. You have seen a trend towards the carriers. I think they have enough. This would broadcast spectrum would qualify as low band. I don't think I see carriers really fighting for low band spectrum anymore. You see them really pushing for the high band spectrum because they've got 3G, they've got enough to carry like, you know, base layer of voice and text. What they really need is higher band data in urban markets so that they can cover the really data intensive stuff. Maybe it's fixed wireless. Maybe it's just AR as you're walking around or drive. But, you know, they already brought the

broadcast spectrum that's similar to this. Do they really need? more 600 kind of base layer, it would be my pushback here. I feel like they've just got enough. And what I would say is that all spectrum is valuable in urban areas. And you look at what's called carrier aggregation, right? And that's something that Qualcomm's been working on. And what that essentially is, is the ability to take lots of different spectrum bands and pull them together into channels. And so, and then you can get more spectrum bands in an antenna. And you get more data through lots of different spectrum bands. So yes, when you have channel, so, so part of there is in your point that two gigahertz spectrum is more valuable in 5G world than, you know,

600 megahertz is because propagation, like you said, in urban areas, that propagation doesn't quite matter as much, right? You can get two gigahertz and you can go, you know, a couple miles and that's fine, right? Because it has the wider channels, you know, wider channel means you can, you know, transmit more data through it. But what I would say is that six, still has value. Yeah, maybe it's not $7, $8 a megahertz pop, but it has real value because you can push it with that carrier aggregation

and you can effectively add it to the phone and it's just an additional way that you can keep transmitting more data to your customers who are going to be watching 4K videos while walking down the street, right? In urban areas or your autonomous cars that are all going to be linked to the wireless network. So I would say all spectrum is valuable in urban areas.

But yes, you're right. It's not getting the same price per microhertz pop. But again, it just goes back to the fact that even if you get 50, 60 cents a dollar, you know, that there would be a home run for the stock. And I just want to clarify one more point here. This spectrum, I guess theoretically, if, you know, if Verizon came and bought all of HCC, Verizon could probably go redo the license on this. But this spectrum, if you really wanted to monetize it, you'd need to have another broadcast auction. I don't think any are on the horizon. So you're probably. talking at minimum five to seven years away. I do think we'll have another broadcast auction at some point. This is not a near-term thing. But as you said, it could cover the whole market cap. So even if it's seven or ten years away, if it covers the whole market cap, everything's gravy. But just to baseline everyone's expectation, we're not talking, there's going to be a spectrum auction tomorrow and you're going to realize this value. But what I would say is the spectrum auction sort of gives us what substitutes, where substitutes value the spectrum, which is a proxy for wholesaling, right? And I think that's where the company is leaning in urban markets with what's going on with

ATSC3, right? You can wholesale the spectrum to a carrier. And so you don't need to have any sort of an auction happen, right? And then, like I was saying, that you have the one-way transmission of the data through the ATSC broadcast tower. And I think that's where they get 5G value earlier than another potential broadcast auction. That makes sense. Perfect.

We could honestly talk spectrum and broadband. broadcast all day. But I do want to, we're already running pretty good. And I want to be able to talk about management and some of the parts. So let's move on to one of the other segments. Why don't we go to DBM? I think we can do this pretty quickly because DBM, it's not like it's a super intensive business, super crazy complicated. They actually are publicly traded. There's like a little stub remaining from the takeout years ago. I think it's DBMG is what it trades under. But that's hyper, like what everybody should be very careful there. Just on DBM, right? They can construct, if you're going to, the clippers are building their new arena, they're going to

fabricate and construct the steel for that arena. My question there would be, you know, when I hear that, my first thing is, oh, that's a commodity business. It probably deserves to trade for, you know, basically the value of their net assets. They're not going to, because they're not going to be able to earn excess profits over time. That would be my first thing. And I'll just let you tell me why I am wrong, why this business can actually kind of earn a little bit of, they call it the economic profits, right? Profits above the cost of capital. So I think there are very, there are very few people in the country. Again, this is a localized business too, right? There are very few people in the country and even fewer in their markets who can take on these sorts of

projects. And that's why they get a margin on them. So one of the things you saw in COVID was these large scale projects just ceased, right? And they stopped. And these guys, HC2, you know, Q1, Q2, they were getting something like a six to seven percent EBITDA margin. Historically, they've been in the 10 to 12% range. And now that some of these large-scale projects are coming back, you see that the large-scale projects really give them, you know, quite a large margin. So I think there is, and they also have design capabilities. So they bought sort of a design business, Gray Wolf. And so they have a lot of, you know, although they're sort of soup to nuts on, you know, designing, building, and fabricating a steel structure. And so there's,

really is a lot of know-how to that. And there's a lot of sort of history, right? No new, no new steel fabricators are really being started right now. So I actually do think it is a pretty good business. And look, to your point, it has historically been a cyclical. I think things are changing with some of these secular trends related to onshoreing and, you know, re-invigorating the grid, building some of these fabrication facilities in the U.S., you know, what's happening with the infrastructure bill. I think all of that makes sort of the case for, you know, non-residential construction and, you know, infrastructure-related construction, spending greater. And I think that kind of gives them a multi-year tailwind. But this is a business that's been generating significant

free cash flow pretty much, you know, forever. It's a business that's existing. for a very long time, you know, and it's a business where their secret sauce is, again, the scale that they have. Just if you don't know, that's completely fine, but the Clippers new stadium that they won the award for, how many people do you think could, because again, this is the local project, how many people do you think could bid on that type of thing? From what we understand, again, we've spoken to experts in the fabrication industry that's of own fabricators and copper smelting plants and so forth. And we think that it's just,

it's very, very few. Okay. Yeah. And it's big and it's lumpy. And obviously it's not like there's a clipper stadium getting built every month. But when they go bid on it, you know, in my mind, I was kind of thinking maybe there's five to seven firms that could potentially bid on that business. So, you know, when you talk five to seven firms, that's local legopoly. You are probably going to earn, it might be a little cyclical, but you are probably going to earn economic profits. Am I thinking about that correctly? Yeah. And look, our compliance doesn't, you know, like me to mention an exact number in case we're wrong, but I believe the numbers around the numbers you mentioned are correct. And think about what they're doing. Rams, Facebook, J.P. Morgan Building, you know,

one of the fabrication facilities, one of the semiconductor fabrication facilities out west, the Apple headquarters, clippers, right? All of many of the large-scale projects that are being built right now are being done by them, I would say one. And I would say they acquired a company called Mountain State Steel last two years ago now. And, you know, they do a lot of infrastructure, you know, roads, buildings, you know, bridges, dams. And so a lot of that work, they have the capability for as well-based infrastructure. And this, it's still kind of a publicly traded company. It's super thinly traded. It relates to the takeout that they did a few years ago. But when they did the takeout a few years ago, A, I remember tons of shareholders were screaming that the takeout

was way too cheap. But do you remember what multiple that they took the company over a couple years ago at? You know, I have it. I have it, but I don't have the number. I believe it was a mid-single-digit multiple. In my head, I can send you the exact number. Yeah, no big deal. In my head, I think it was under six times. And I remember people were very upset because they were arguing many of the same things you were like. Tail went behind them. This is way too cheap. This is a little bit of oligopoly.

But I think there was some weird dynamics around that bid. I was just wondering to back that up. Okay, I think that's good on DVM. Let's just turn over to healthcare. You actually gave a very lengthy description of R2 earlier. So we don't have to talk too much about it. I just, R2, you know, I guess my first pushback on R2 would be, hey, this is by the people who made cool sculpt, right?

Sounds great. aesthetics. When I looked at it, I'm not a health care expert. People, every now and then people watch the podcast and they'll send me a message to be like, hey, man, love the podcast, but you don't look that great. Is everything okay? I'm going to be like, oh, wow, thank you, sir. So maybe my skincare routine isn't up today. But, you know, I'm not super, but I do wonder like, Coolscop, right? It's already in a bunch of doctor's office, a bunch of plastic surgeon's office. What's the difference between R2 and Coolscop? Like, why is this going to go supplant the thing that's already in a bunch of doctor's office. So different use case, similar technology, similar IP around that

technology that they have, but different use case. Cool sculpt is effectively like a non-invasive version of liposuction, right? Where, you know, you're freezing sort of the fat cells and then that sort of creating what Cool Sculpt does. This is a little different in that it's sunspots, in its age spots, and so you're essentially basically freezing the skin cells to get rid of these spots. I would recommend, or you can even link it to Twitter is the Instagram handle for those guys, and you'll see just sort of what the before and after is. And again, you know, when we talk about sort of channel checks that we do, you know,

we've talked to dermatologists, and it's funny because a couple of the dermatologists joked with me that they laughed that there would be no innovation in the dermatology industry if it weren't for Rox Anderson because he's such a thoughtful, smart, innovative entrepreneur. And, you know, they think that this is going to be, you know, as valuable, as successful as what they've seen over the last 15 years with Cool Sculpt. And so that's really the value here, right, is that, you know, it's a different use case, but it's sort of people who already have, experience with Kohl-Sculpt and already sort of use it and it's already rolled out. You know, it's interesting because the CEO of R2, you know, was at Kool-Sculpt, was at, you know,

Zeltique for a number of years. And same thing with if you just sort of look, even look at LinkedIn bios of a lot of the people who work for R2, they were all at Zeltique. And so they, I think, I think, at least everyone I've talked to has looked at this as sort of Zeltique 2.0, but it's, again, it's a different use case. And I think, you know, as you start to see glacial spa, which is the skin lightning treatment. And I think that's sort of culturally valuable and maybe in certain other countries. And I think that roles at meta spas.

There's, you know, value to that, that product too. And again, that's more lightening the skin rather than, you know, freezing the age spots and the sunspots. And this is what's the path toward, because this is not FDA approved, I don't believe. I think they think it's on the near term. What's the past in timeline to FDA approval? So it is FDA approved for Glacial RX. And so they are, you know, they did like a million and a half dollars, $2 million in Redneck 1.7 last quarter.

So it really hasn't, it basically just got approved, you know, this year. So, you know, you're not going to see, you haven't seen real rollout there. I know they're doing their big New York City demo in mid-November. and, you know, they're doing demos again, if you follow them, you can see that they're doing demos around the country with doctors offices. So I think in the next two to three quarters, you start to see sales ramp. And similar to Zalti Coolsculp, they're doing the leasing model to where, you know, offices can sort of lease the system and, you know, pay the lease and get paid as they're doing treatments. And they both both bait and the Chinese partner put money in,

earlier this year. What was the valuation of the money that they put in? So the valuation was, I believe, under $100 million. I don't have the exact number off here. And they put in, Vate put in like $15 million, and I think their partner put in $10 or $15 million as well. Yes, they put in $15 million. Okay. And I think I believe this is, again, not come from the company, I believe, and I get, you know, the impression that this is now they're done funding this business. So now you're effectively going to see, I mean, obviously they have no, their only OPEX cost is really the sales force, right? And they've already started building that and growing that. So, you know, they really are just going to start leasing these devices, selling the devices

outright. And, you know, that's when I think, and I think that happens at pretty high incremental margins. And so I think that's when you start to see the business inflect. And again, 25 to 30 million in revenue is where they can IPO it just like they did with Zeltique. And, you know, again, is Chelsea $2.4 billion in Delaware game. Yep. So we're literally at the inflection point is basically your thesis in R2. That's perfect.

And again, the IPO it at, let's call it a billion, that their stake will be $500 million or so. It's going to cover the entire market cap and the debt of this company in this case. So you get the other $2.3. Or even if they don't IPO at that value, I think it gets there over time to a billion. So let's go put it all together.

We've mentioned, we've said, I think four times. This segment covers all the value of the company. But let's just walk through. And then some. Yeah. Let's just walk through your base case, how you value each segment, how that would come up per share. And then we can, you know, there is corporate expense.

There is corporate debt. We can take the corporate debt out and come out with a base case. And you can do range however you want it. But let's just talk about stocks at 370, 380 right now. What do you think that some of the parts here as far? So I think you put something like, so when we look at the, um, do you? DBM next 12-month backlog. That's about $907 million. When we extrapolate what NTM backlog usually results in in revenue a year out, if that makes sense. It's about a 65, 70 percent coverage of

revenue. So that would imply $1.3 billion in revenue 12 months out for DBM-Shuff banker. And so we think that that's going to grow high single digits. That gets us to $1.4 billion or so for 23. I think I'm being conservative with margins. I'm looking at 12% EBITDA margins. I think that the backlog is growing at higher margins from what I understand. So that gets us to put a nine times multiple on that. That gets us to $1.5 billion. Like you said, they don't fully own it. You know, there's some debt on it. That gets HC2 stake or VAT stake to $1.2 billion there. 1.2 billion over 77 million shares, not including hold code debt, gets you to about $15 per share in value, right? So that's at nine times. And let's just, let's fast word to the whole,

how much hold code debt per share is there here? So there is, the whole code debt per share is something like $5 per share. So just to break it down, not investing vice, but you just said $15 per share for DBM. And then if we took out the $5 per share, that would be $10 per share. So right there, we've got more than double on the share price. We've covered all the debt and we've still got two segments outstanding. Yep. And again, like we talked about before being a Malone buff, he always says businesses are often worth more dead than they are alive, right? So we're putting a nine times multiple on this business, but they could easily sell for 11 and 12 times, right? And so if you were in that situation where you sell for 12 times, you know, they want to fold the business up. They

want to harvest the assets, sell for 12 times, and pay off the hold code debt, you get a lot more value than, you know, even $15. And one thing that's jumping out of me, I'm doing the math in my head right now, but you said nine times EBITDA, you know, even if you believed this was a six or seven times EBIT business, there's still plenty of wiggle room in the numbers you just presented where it would cover the debt, it would cover the market cap here, right? And I think when you start going below six times EBITDA, you're kind of saying, like, hey, guys, interest rates are still pretty close to zero.

like nothing goes for below six times EBITDA anymore unless it's a dying business with environmental liabilities or something. So I'm just throwing that out there to say it's not like you threw out a super high multiple just to get there. We can get more conservative and still get to the same place. And look, the other point I would add is if you're talking about somewhere between 2 and 4% in CAPX as a percentage of revenue, right, you take that CAPX out, you're still at a pretty decent, you know, free cash flow margin. That's a great point. Your free cash flow margin, right? If you're talking about six times, you know, EBIDA, what are you talking about on free cash? You know, same thing, mid single digits. Is that, again, I put at least 10 or 12 times free cash flow

of business. And that's just to just to stroke your go one more time. That's a great point because, again, when you say, you know, 10% EBITDA margins, they're building giant steel buildings. The first thing that jumps your head is, oh, this is probably really KAPX heavy. So maybe it's 10% EBITDA margins, but the free cash flow margins only come out to 1%. So, you know, you need to low also, no, it's 10% EBITDA margins. The free cash flow margins are 7 or 8%. So if it's five times EBITs, it's still a very high free cash flow multiple. So that's perfect. And the other I mentioned just really quickly on that is that they are cost plus contracts. So, you know, when we look at like the crazy commodity volatility we've seen this year, you know, they're not

taking that commodity risk. And that was something I needed to get really comfortable with here. given what we're seeing with steel prices. You are talking to a man who has been hit by cost overruns one too many times. So I'm glad you said that. Let's turn over to R2 and just quickly. I think we mentioned the IPO, but there's more than R2 there. Just how are you valuing the healthcare segment? I'm honestly not valuing any of these businesses,

anything beyond what we're putting on R2. And so, you know, Meta Beacon, the next most promising one, they're serving their U.S. Pivotal Study in Q4, global pivotal study, 2022. know, maybe there's a monetization event, 20, 24 or later, but it goes back to your point and some of the stuff we were talking about earlier. I don't think that you can really assume that we're going to get any value at any of these other businesses unless they sell the entire portfolio. And look, when you look at Meta Beacon, Genovel and Triple Ring the other two

of the other investments, they put something like 30, 32 million into those businesses. So if you want to value them, if you can assume they can sell them investing capital. If you want to assume that they get 75 cents a share, you know, again, that's still a quarter of equity value on those businesses, not assuming there's any future value. Perfect, perfect. And how are you value in broadcast? So broadcast, I think, is to your point, like there's a lot of different ways you can value broadcast. But the way I'm thinking about it is what's my proxy for valuation. Yes, I don't think a spectrum auction happens anytime soon. But even if you were to take the top 10 markets and don't take any of the other markets and value them at 30 cents 40 cents a

megahertz pop you know i get to five six hundred million bucks in value um right and again they're in 34 of the top 35 markets and then they have another um 90 markets on top of that right so um or sort of 90 total excuse me another 65 recall it on top of that so um so think about that and you just think about if we're only valuing the top 10 we're not valuing the rural areas we're not valuing any of the sort of, you know, semi-urban, suburban areas, you know, we're talking about seven bucks a share. But I think I really do think three years out, you're going to see what they're doing with ATSC3 in the leasing and then what they could potentially do in the rural areas with leasing out channels to content providers. You're at, you know, well above that. But for the sake of

argument, being conservative, seven bucks a share. So if I, doing the math from memory, $15 a share for DBM, round $7 per share for medical, round $7 per share for broadcast. Put it all together, that gets us, let's just round it up to $30 per share. We're going to take out $5 per share for holds co debt. And then there's also kind of hold co corporate expenses, which would you strike $3, $4 per share from that? Yeah, you're right. So I basically, we look at three years of OPEX and we sort of value that up front at another 30 million bucks or 40 cents a share. Okay. So take out 40 cents more on top of that, you're at 24 bucks, right? Okay, so we'll call it 24 bucks versus a $4 share price.

People can see why it's so exciting. It's one of the higher octane businesses. So I think we've talked about a lot. I just want to turn to the first question, which we kind of got away from, right? A big question here. This was the question at the old HCC, right? Like, Bill Falcon, visionary, I think. I don't know if you had shareholders' best interests at heart.

New management team comes in. Activists comes in. They change up, very dramatic. my push, I think the biggest pushback here would be is management the right people to realize value. And I can go through a bunch of things. But the two things that jump out to me are number one at the beginning of the year. They sold their insurance segment for, I can't remember the exact terms, but they sold it to the director who was an activist who replaced the board, right? They sold it to him.

He did an inbound to the company. He said, I'd like to buy the insurance segment and they ended up selling them. That's a mammoth red flat, right? selling to a director is that's a big deal, a big subsidiary selling. And then the second thing is last year they did a rights offering. And they had the Avi Glazer, who was the chairman, he backstop the rights, partially backstop the rights offering. And he got, I would say, preferential preferred shares for backstopping the rights offering. So that's two related party deals. I look at that and I say, oh, yikes, that it's kind of the same thing that was keeping me away to

begin with. So how would you respond to that? So I would say two things. I would say one on the asset sale, the insurance business. I think the insurance business was a mess. I think, you know, I have a lot of respect for Mike. And I think he understands insurance well, but I didn't, I don't think this was a great fit within HC2. And there were also within bait. And so there were also a lot of issues with the previous CEO and his ability to kind of run an insurance book and the fact that he was running it, given some of the stains on him before. hand. So I think those are a couple of the issues for the divestager. I know they ran an open process. And the other thing to keep in mind is this isn't just sort of a plain vanilla insurance book, right? This was long-term care insurance. And, you know, we see what happened with GE in that business. We see what Jenworth. Oh, yeah. Oh, yeah. We see what Aetna did with their business. Like, it's just this, this has sort of been a mess. And so, you know, taking this off balance, selling it at a time when, you know, the market was valuing this business like they were going

bankrupt. I think helped them shore up the balance sheet. It helped them do that refinancing that they did in early 2021. I think the rights offering, and that's a segue to the rights offering too. Yeah, same thing. You know, this was a business that was sort of left for debt. It had really high cost debt. The ability for management to sort of refinance and kind of get it to that next stage where dividends from DBM to hold go were paying off interest expense as they were as they were looking to put more money into AR2 and you know as they were looking to get spectrum self-funding required doing something like this rights offering yes you know there was one person who sort of showed up I'm sure if any of the other large holders who and the other thing to mention is that there were you know a couple other 13D file or some sort of in Phil Falcons court some some who, you know, like Mike, who were, who were, you know, pushing to take fill out of the company, you know, they could have all stepped in and backstop. So there were a number of large holders here.

So I just think they did at the time what they needed to do to get the business in the right spot, to do that refinancing and to now harvest all this value. Just on long-term insurance, just to give people an idea of how big a mess the long-term insurance has been, Have you, have you looked at Genworth recently? No. I spent some time looking at them recently and I'll tell everyone why. So Genwer's share price is $4.50 per share. They owned, they just IPOed their mortgage, it's their mortgage insurer, an act.

An act at today's share, Jenworth owns almost $6 per share of enact shares because they only IPOed 19% of it. They retained 81% of it. So $4.50 per share, they own $6 of an act. And then outside of that, they have. $22 per share in book value from their U.S. long-term insurance segment. So you can see this tier of prices 450, they own $6 of an act, and allegedly they have $22 of life insurance or long-term insurance value there. The market clearly doesn't think the marks right there, right?

They think there's a lot, a lot of value that's going to get sucked out as they continue to pay liability. So just let everybody know how big of a disaster those segments are. Let's just turning, so we mentioned the right stuff. Just, I want to spend one more second on the chairman because I think he's pretty much in control now, right? He owns over 30% of the stock after the backstop and everything. You know, I, do you want to go into any of his background or anything? Because I tweeted this out a little bit joking. Manu stock hasn't exactly performed great under him.

I believe his father was a billionaire who really built his empire. So when I see him running the business and Manu's kind of not that great under him, I do. James Dolan, MSG, things pop into my head. flag spots ahead, just do you want to address them a little bit? Yeah, I mean, all I can say is I'm not, my, my, my, uh, father-in-law is, uh, was chairman of Tottenham Hotspur. So we're, we're a, uh, we're a Tottenham family not to say anything Manu does. I'm not going to say anything about it. But anyway, um, no, what I would say is from what I understand, he's, you know, a well-respected businessman, um, you know, he's thoughtful and he, who does the right thing by, you

people who do business with them, but that's sort of all I would, you know, I would add up that front. And again, overall, I think there's one thing to step back here and say is that for us at Papyrus overall, you know, every company we invest in, we think has a really good management team. And, you know, again, very small stub position in HC2 back when Phil Falcone is running it because I thought he was a visionary, but I had trouble with some of the, you know, issues that the activist, you know, communicated. So it was never large. But at the end of the day, when we take a position, you know, we're deligencing the management team. We're getting to know them. And in this case, it's, you know, Wayne and Mike, the CEO and CFO and getting comfortable

with them. And, you know, I don't see too much here that I am, I'm cautious about in terms of, you know, the management and the board. The one thing I would mention is that the company just put a rights offering in place to sort of protect the NOL that they have. So they have about 100 million usable NOLs and they have 175 million in, you know, IRC carry forward. So, you know, I do think section 163, but I do think that management now has an incentive to really monetize the business because it's not like, you know, they can really be buying, especially members of the board who own a lot of stock can really be stepping in here and buying much more, which I think, again, puts an impetus in place to really monetize this business.

And let's end there. So we've gone through the some of the parts. We've gone through each of the business segments. We've gone through management alignment. I think you mentioned management is buying shares on the open market and they own a lot of shares, which is always nice. But you know, you've got three disparate business, broadcast, startup, healthcare, steel fabricator. How do you see this playing out. Are they just going to be a bunch of spin-outs? Are they going to sell a big segment? Or the IPO R2 and then spin that out? Like, how do you see this playing out in the end game? I really think that this is going to be something like, we're going to see an IPO of R2 in 2022. And then I think on top of that, we're going to see, you know, some sort of a

spin over time of R2 might not be up front, but in 2022, 2023, to shareholders. And I think we really get a lot of our sort of cost bases out when we get R2's shares spun to us. Then I think there's going to be something like a continued leasing of the spectrum through ATSC3 and through 5G. And I think you see more sort of a windfall of free cash flow in the spectrum business. And maybe that's a prelude to spinning or selling spectrum. And then or monetization of some stations through again like a broadcast auction. But like we talked about, that's years and years away.

So I think it's more sale of the potential business or continued free cash flow generation there. And then I think you really see something like a potential name change in a few years to DBM to people can really see and they can highlight the value in this business. And I think in that time, they have some debt that they're going to pay off at DBM, sort of sellers, notes and so forth. And so I think, you know, you see some debt. pay down at DBM and then the overall debt picture of Holdco plus BBM looks a lot better.

And I think people just put more value on this day. And I think that's when you get to a higher stock price for current Bate. So if you and I are doing a podcast five years from now and we're talking about your new name and I say at the end, hey, let's just follow up on bait. I think what you're saying is you'll think spectrum will have been spun off or sold, R2 would have been spun off and sold. And this business, it seems like DBM will be the core. They'll have rebranded as DBM and it'll just be a pure play play on DBM and everything else who's spun off. So you're talking lots of events and kind of special sits there in the meantime, which unlock huge value if the numbers you walk through are to be believed. But that's kind of how

you see it playing out. Yeah. And again, I think in these special situations, especially in the market right now, you really need to see asset monetization and you need to see sort of a business turning into an actual cash flow yielding operating business. And so again, I'm not a member of the management team or the board. So I don't know what they're going to do. But this is what I see is the best way to monetize. And, you know, I know they're going to work in the best interest of shareholders. So, you know, I think this is the way they move. And I'm very, very, when I say in terms of levels of certainty, I'm very, very certain that, you know, an R2 type IPO happens. And I think that realizes a ton of value here. You know what the other most important catalyst that you did not mention

is the bucks. Tom Brady, the quarterback, maybe going to the Super Bowl again. Raymond James stadiums where they play that was built in the late 90s. So we're starting to come up on the time where the bucks need a new stadium. And I think I know a steel contract. Oh, obviously, you're the chairman. He owns the bucks as well. I think I know a steel contractor who might be in line for getting a big buck stadium. Do they cover South Florida? I believe the banker business does. Yeah, there we go. There we go. Cool. Well, hey, this has been great. We've gone over an hour at this point. so it probably times to wrap it up, but I always want to give you the last word. Anything we didn't hit on that you wish we had hit on, anything we kind of touched on that you wish we had hit

a little harder, just any lingering last thoughts? No, I think this is a really incredible story. I think we're at a point where we know why the stock is in the doltrums, right? Why is it misvalued? It's had this mess of the history, like you said, it's been a widowmaker for so many small-cap investors, but I think we're at the point where we're self-funding in some of these businesses. I think Spectrum hits its inflection point in 5G. I think, you know, DBM has been doing some really cool stuff and we're just at this inflection of the infrastructure bill. And I think same thing with R2. You know, when you start rolling this thing out, people see the power of it and the value of the product. So we're at this very cool inflection point in all three of these

businesses. And I think the next few years is going to generate a ton of value. I would leave it with that. Perfect. Well, hey, I'll leave it there. I'll just remind everyone this, podcast is not investing advice and then it's going to send me some additional disclaimers those are going to be in the show notes if you want to see some of those twitter links that we talked about all include a link to my Twitter kind of notes and questions on fate as well but and this has been great thank you for coming on and pitching such an interesting company and looking forward to having you on for the second one thank you thanks for having me andrew really appreciate it thanks for all the incredible questions thanks man talk to you soon